Halyard’s Weekly Wrap  – 03/04/22

The heighted volatility we saw last week intensified this week as bid/ask spreads widened and liquidity has begun to dry up.  Volatility was elevated across the board with crude oil continuing to sky-rocket, developed foreign exchange showing marked weakness versus the U.S. dollar and equity volatility, as measured by the VIX index, closing the week at the high end of the recent range.  Of course, the panicky market is a result of Russia’s declaration of war against the Ukraine.  While the general population is aware of the market dislocations, the rise in the price of gasoline is a direct hit to their wallet and one that has the average citizen worried.  As we close out the week, economic forecasters are attempting to back into the price of a gallon of gasoline should the global economy halt the import of Russian oil, and their forecasts are frightening.  Estimates are as high as $150 to $200 per barrel of oil with gasoline topping out at $8 to $10 per gallon.  Should the precious commodity rise to that level, we’re fairly confident that the U.S. economy will be in a recession.  As it is, the Atlanta Federal Reserve’s GDP calculator is forecasting 0.041% economic growth in Q1 2022.  We wonder how the investing public is going to react to 0% economic growth after enjoying 6 quarters of “eye-popping” economic growth fueled by emergency COVID stimulus.  The first estimate of that growth comes at the end of April so we have plenty to worry about between now and then.

For his part Fed Chairman Powell’s testimony before congress signaled that a 0.25% rate hike is likely at the conclusion of the March 16^th FOMC meeting, but he left the possibility of 0.50% open.  We may be guilty of being too critical of the Fed, but they conceded that inflation is a problem months ago and they still haven’t gotten around to ending emergency monetary policy.  That criticism is going to intensify when the rise in energy prices is factored into the consumer price indices.

Given the backdrop of the terrible atrocities befalling the citizens of the Ukraine, not much attention was paid to the employment report released this morning, but the measure showed that the U.S. continues to create jobs at a very rapid pace.  February saw 678,000 new jobs created, exceeding the forecast by more than 250,000 jobs.  To put that into perspective, under normal circumstances 200,00 new jobs in a month would be considered a solid report.  But economic fundamentals are, and will likely continue to take a back seat to the aggression in Eastern Europe.